Nonprofit Cash Flow Management Between Grant Payments

Say your board approved a balanced budget. Two weeks before payroll, the bank balance says you are short, because last month’s state reimbursement has not arrived.

Nonprofit cash management is how you see that gap coming. Of the leaders who apply to the Center for Nonprofit Coaching, 41% run organizations with operating expenses under $250,000 a year (67 of 152 in our intake data), where the executive director is often the finance team as well.

Why Can a Balanced Budget Still Run Out of Cash?

A budget counts what the year should bring in and spend. Cash depends on when each payment lands. Reimbursement contracts make you spend first and bill later, and grants and gifts arrive on their own schedules, so an organization can balance for the year and run short for a month.

Propel Nonprofits, a nonprofit lender, notes that the budget and financial statements do not tell you whether there is enough cash for payroll next month. The statement of cash flows looks back. Payroll needs a view forward, and this part of our complete finance guide shows how to build one.

Government money adds delay. In the Urban Institute’s 2013 national survey, 45% of nonprofits with government contracts or grants reported payments later than their contracts specified in 2012, most often at the state level. For an organization paid by reimbursement, grant reimbursement lag is part of planning the year.

Before fixing a gap, Propel advises deciding whether it is a timing problem or a deficit. A forecast carries you across a late payment. It cannot close a structural deficit, where spending runs ahead of revenue all year.

How Do You Build a 13-Week Cash Forecast?

A 13-week cash forecast has one row per week for the next quarter: starting cash, cash expected in, cash going out and ending cash. Compare each week’s ending cash with a floor you set, such as one payroll, and the dangerous weeks show up early.

1. Start with today’s actual bank balance.
2. List cash in by the week it will land. Check how each revenue source pays, and stay conservative on grants not yet confirmed, as Propel advises.
3. List cash out by the week it is due. Payroll first: with biweekly payroll, two months a year carry three payrolls. Then rent, bills and lump sums such as insurance.
4. Carry ending cash forward as next week’s starting cash.

The table uses made-up figures for an imaginary organization. It starts with $45,000, receives about $1,500 a week in gifts, a $28,000 state reimbursement roughly once a month and one $40,000 foundation renewal, and pays $14,000 in payroll every other week.

Week 6 is the number to read first: $14,000, exactly one payroll. If the week-7 reimbursement slips four weeks, week 7 ends at minus $500 on a payroll week. A forecast built in week 1 shows that six weeks ahead, time to call the state agency, brief the treasurer and line up a bridge.

Update it every Friday, swapping the oldest week for actual figures and adding a new week 13.

What Should You Do When a Grant Payment Is Late?

Call the funder first and get a date. Then work three levers in order: bring cash in sooner, push payments out later, and bridge what remains with reserves or credit. A gap that returns every quarter is a budget question for the board.

Bring cash in sooner. Ask whether an approved payment can be released now, or paid in part. For federal funds, including those passed through a state, 2 CFR 200.305 says the federal agency or pass-through entity must pay within 30 calendar days of a proper reimbursement request. It also provides for a working capital advance when reimbursement is not feasible because an organization lacks sufficient working capital. Read your grant agreement with your accountant before you call.

Push payments out later. Ask vendors for longer terms before bills fall due, split lump sums and delay purchases that can wait.

Bridge the rest. Drawing on an operating reserve, within your reserve policy, is what a reserve is for. Propel also names a line of credit or bridge loan. Ask your bank and accountant about the cost before you need one, and check your written financial policies for who approves either.

How Do You Plan Cash Across the Fiscal Year?

Map the fiscal year month by month before it starts. Mark when each source pays, such as annual grants, reimbursements, an event and a giving campaign, then the heavy months: three-payroll months, insurance and audit fees. The months where cash dips become dates for funder calls and board updates.

A dip you see in the plan is a phone call. A dip you find on payroll day is an emergency.

Build the map while setting the annual budget, spreading expected cash by month on each funder’s real payment schedule. Propel’s rule applies: do not just divide the annual budget by 12. This map is the 12-month projection Propel recommends. The 13-week forecast is its next quarter, by week.

For the board, add one summary number: days cash on hand, the days of usual spending your cash in the bank would cover.

Which Conversations Protect Payroll?

Four conversations protect payroll, and their timing matters more than their wording. Tell the treasurer and board chair as soon as the forecast shows a gap inside 13 weeks. Then call the funder and the vendors you need to move, and tell staff only what is certain.

• Treasurer and board chair: the forecast, the low week, its cause, the levers in use, and any decision only the board can make, such as a reserve draw.
• Funder: where the payment sits, a specific date, and whether an advance or partial payment is possible.
• Vendors: call before the due date and propose a date you can keep.
• Staff: if payroll is safe, say so. If it is at risk, say what you know, what you are doing and when you will know more.

If payroll is already at risk, our guide to leading through a cash crisis covers the first 48 hours.

Where Do You Start This Week?

This Friday, build the first 13 weeks from your bank balance, your payroll calendar and the payments you expect. Mark the lowest week, compare it with one payroll, and send the forecast to your treasurer. Then update it every Friday.

If the numbers feel foreign, start with financial literacy for the role.

The Center for Nonprofit Coaching is a coaching organization, not an accounting firm or a lender, and says so during matching when a problem needs technical help. A coach works on the leadership side, such as when to raise the alarm and how to bring a reserve draw to the board, through coaching for executive directors carrying the finances.

Six sessions cost $300, $400 or $600 for organizations with operating expenses under $250,000, under $500,000 or over $500,000 a year. Volunteer coaches donate their time, which keeps fees 85%+ below market rate. For a thinking partner on those conversations, apply for coaching.

Frequently Asked Questions